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Thursday, 20 March 2014

FDI likely to boost India’s Islamic finance market

Foreign direct investment is likely to boost India’s Islamic capital market in the coming years as participatory finance is gaining popularity in the country.

A Delhi-based Indian business group said it was seeking Islamic finance to establish a buffalo meat plant in Bihar at a total cost 265 million Indian rupees ($4.33 million).

“We hope the success of our project will encourage more entrepreneurs to carry out participatory ventures making use of interest-free funds available in India and the Middle East,” said Shahid Ahmad, director of ABZ Agro Foods.

“Such ventures will help mobilize funds of those who do not want to deal with interest and will contribute to boosting the country’s real economy,” he said.

Asked why he opted for Islamic finance despite loan offers from several commercial banks, he said: “It was primarily because of my religious faith that prevents me from dealing with interest-based finance.”

He emphasized that investors in the buffalo project would gain good profit, not less than 27 percent, much higher than interest received from bank deposits. “Shareholders in our project are considered our partners.”

Ahmad said the project would benefit a lot of people in Bihar, especially the poor.

“It will also boost related industries such as transportation, packaging and animal farming,” he added.

The government has offered to give a subsidy of Rs.53 million to support the project while developers are contributing Rs.52 million.

“We would like to mobilize the fund required for the project on a participatory basis through equity shares and foreign direct investment, which is permissible as per the Indian laws,” Ahmad said.

The group is seeking funds from potential Saudi and Indian private investors, offering two million equity shares worth Rs.160 million to start the project.

He thanked the Jeddah-based Indian Forum for Interest-Free Banking (IFIB) for taking the initiative to promote the project among potential investors in the Kingdom.

V.K. Abdul Aziz, secretary-general of IFIB, said existing Indian laws allow entrepreneurs to make use of the huge Islamic funds.

“All religions, including Hinduism, Christianity and Islam have prohibited interest, even if it is one percent,” he told Arab News.

He hoped that more businesses like ABZ Agro Foods would come forward to utilize untapped interest-free funds available from Muslim NRIs, and Gulf businessmen and businesswomen.

“We have got vast scope to mobilize funds from all over the Middle East to meet India’s financial requirements to carry out its development and expansion projects,” Aziz said.

“If this (buffalo) project is successfully implemented, it will enhance the reputation of Islamic finance and encourage more entrepreneurs to make use of this facility on a large scale,” the IFIB official said, adding that all Indians would benefit from this participatory scheme.

Mohammed Shakir Qureshi, another director of ABZ, said financial experts have emphasized the project’s feasibility and profitability.

Indian meat is very much in demand in world market. India accounts for 57 percent of the world’s buffalo population.

“Only two to three percent of buffalo meat is currently processed and the industry is growing at an annual rate of 25 percent,” he said. We’ll get cheaper raw material and will be able to supply quality meat,” he added.